<PAGE 1>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997 Commission file number 2-80466
Norwest Financial, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42 1186565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 Eighth Street, Des Moines,Iowa 50309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515)243-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X . No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock (without par value): 1,000 shares outstanding as of
May 1, 1997.
The registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore
filing this Form with the reduced disclosure format.
<PAGE 2>
PART I. FINANCIAL INFORMATION
NORWEST FINANCIAL INC.
Consolidated Balance Sheets
(Thousands of Dollars)
(Unaudited)
March 31, December 31,
Assets 1997 1996
Cash and cash equivalents $ 125,209 $ 141,692
Securities available for sale 840,792 816,980
Finance receivables:
Consumer:
Loans 3,300,265 3,324,655
Sales finance 1,735,262 1,683,655
Other 414,048 447,021
Commercial 491,837 494,104
Total finance receivables 5,941,412 5,949,435
Less allowance for credit losses 171,459 169,133
Finance receivables - net 5,769,953 5,780,302
Notes receivable - affiliates 604,620 574,344
Property and equipment (at cost, less
accumulated depreciation of $92,577
for 1997 and $89,373 for 1996) 77,475 75,068
Deferred income taxes 40,362 34,456
Other assets 197,804 338,003
Total assets $7,656,215 $7,760,845
See accompanying notes to consolidated financial statements.
<PAGE 3>
NORWEST FINANCIAL INC.
Consolidated Balance Sheets
(Thousands of Dollars)
(Unaudited)
March 31, December 31,
Liabilities and
Stockholder's Equity 1997 1996
Loans payable - short-term:
Commercial paper $1,847,310 $1,732,095
Affiliates 162,803 173,006
Other 195,000
Unearned insurance premiums
and commissions 131,125 136,564
Insurance claims and policy reserves 35,077 35,893
Accrued interest payable 81,560 75,765
Other payables to affiliates 36,211 5,565
Other liabilities 233,874 216,031
Long-term debt:
Senior 3,965,371 4,080,894
Subordinated 52,000 52,000
Total long-term debt 4,017,371 4,132,894
Total liabilities 6,545,331 6,702,813
Stockholder's equity:
Common stock without par value
(authorized 1,000 shares,
issued 1,000 shares) 3,855 3,855
Additional paid in capital 90,766 90,766
Retained earnings (note 2) 1,020,745 959,697
Foreign currency translation
adjustment (7,189) (5,991)
Net unrealized holding gain
on securities available for sale,
net of income taxes 2,707 9,705
Total stockholder's equity 1,110,884 1,058,032
Total liabilities and
stockholder's equity $7,656,215 $7,760,845
See accompanying notes to consolidated financial statements.
<PAGE 4>
NORWEST FINANCIAL, INC.
Statements of Consolidated Earnings (Unaudited)
(Thousand of Dollars)
Three Months Ended March 31,
1997 1996
Income:
Finance charges and interest $301,364 $296,425
Insurance premiums and commissions 35,178 33,078
Other income (note 3) 47,913 44,825
Total income 384,455 374,328
Expenses:
Operating expenses 130,694 126,140
Interest and debt expense 92,879 94,704
Provision for credit losses 54,749 45,952
Insurance losses and loss expenses 9,274 9,890
Total expenses 287,596 276,686
Earnings before income taxes 96,859 97,642
Income taxes 34,082 35,643
Net earnings $ 62,777 $ 61,999
See accompanying notes to consolidated financial statements.
<PAGE 5>
NORWEST FINANCIAL, INC.
Statements of Consolidated Cash Flows (Unaudited)
Increase(Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
Three Months Ended March
31,
1997 1996
Cash flows from operating activities:
Net earnings $ 62,777 $ 61,999
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Provision for credit losses 54,749 45,952
Depreciation and amortization 6,995 6,773
Deferred income taxes (2,280) (5,396)
Other receivables from affiliate 31,643
Other assets (16,436) 26,730
Unearned insurance premiums and
commissions (5,439) (5,690)
Insurance claims and policy reserve (816) 684
Accrued interest payable 5,795 1,692
Other payables to affiliates 30,646 4,839
Other liabilities 17,843 8,139
Net cash flows from operating activities 153,834 177,365
Cash flows from investing activities:
Finance receivables:
Principal collected 1,338,642 1,393,407
Receivables originated or purchased (1,383,042) (1,308,506)
Proceeds from sales of securities 26,701 49,825
Proceeds from maturities of securities 18,956 14,461
Purchases of securities (80,093) (83,032)
Net additions to property and equipment (6,262) (4,343)
Net decrease(increase) in notes
receivable - affiliates (30,276) 22,896
Other 150,229 134,559
Net cash flows from investing activities 34,855 219,267
Cash flows from financing activities:
Net decrease in loans payable - short term (89,988) (274,874)
Proceeds from issuance of long-term debt -
Senior 36,545
Repayment of long-term debt -
Senior (150,000) (14,460)
Dividends paid (1,729) (75,000)
Net cash flows used for financing activities (205,172) (364,334)
Net increase(decrease) in cash and cash
equivalents (16,483) 32,298
Cash and cash equivalents beginning of period 141,692 72,991
Cash and cash equivalents end of period $ 125,209 $ 105,289
See accompany notes to consolidated financial statements.
<PAGE 6>
NORWEST FINANCIAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
The accompanying unaudited financial statements and notes
have been prepared in accordance with the accounting
policies set forth in Norwest Financial, Inc.'s 1996 Annual
Report on Form 10-K and should be read in conjunction with
the Notes to Consolidated Financial Statements therein. In
the opinion of management, all adjustments (none of which
were other than normal recurring accruals) necessary to
present fairly the financial statements for the periods
presented have been included.
1. Principles of Consolidation.
The consolidated financial statements include the accounts
of Norwest Financial, Inc. (the "Company") and subsidiaries.
Intercompany accounts and transactions are eliminated. The
Company is a wholly-owned subsidiary of Norwest Financial
Services, Inc. which is a wholly-owned subsidiary of Norwest
Corporation.
2. Dividend Restrictions.
Certain of the Company's bank credit agreements contain
requirements as to maintenance of net worth (as defined).
Approximately $460 million of consolidated retained earnings
was unrestricted at March 31, 1997.
3. Other Income.
Income from affiliates was $13.7 million and $14.7 million
for the three months ended March 31, 1997 and 1996,
respectively.
Interest and dividends from securities available for sale
and cash equivalents were $14.2 million and $12.7 million
for the three months ended March 31, 1997 and 1996,
respectively.
4. Subsequent Event.
On April 1, 1997, the Company received a capital infusion of
$112 million from Norwest Financial Services, Inc. for the
sole purpose of investing in securities. None of the funds
received in the capital infusion will be used in the
operations of the Company.
<PAGE 7>
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Norwest Financial's total income (revenue) increased 3% for
the first three months ($384.5 million in the first three
months of 1997 compared with $374.3 million in the first
three months of 1996).
Income from finance charges and interest increased 2% for
the first three months ($301.4 million in the first three
months of 1997 compared with $296.4 million in the first
three months of 1996). Changes in income from finance
charges and interest result primarily from (1) changes in
the amount of finance receivables outstanding and (2)
changes in the rate of charge on those receivables. In
total, average finance receivables outstanding in first
three months of 1997 increased 2% from the first three
months of 1996; average consumer receivables outstanding
increased 3% while average commercial receivables
outstanding declined 2%.
Three Months Ended
March 31,
Rate of charge on finance receivables: 1997 1996
Consumer 20.96% 21.00%
Commercial 13.77 14.87
Total 20.36 20.47
The increase in income from finance charges and interest was
due to growth in average finance receivables outstanding
offset somewhat by the decline in the rate of charge. The
increase in average finance receivables was due primarily to
regular business activity.
Insurance premiums and commissions increased 6% ($35.2
million in the first three months of 1997 compared with
$33.1 million in the first three months of 1996.) Changes
in insurance premiums and commissions generally correspond
to changes in average consumer finance loans outstanding
(those secured by real estate and not secured by real
estate). Average consumer finance loans outstanding
increased 5% in the first three months of 1997 compared with
the first three months of 1996. In addition, Norwest
Financial also provides credit insurance as part of the
consumer finance business of several affiliates and a non-
related company. Insurance premiums and commissions on
these arrangements were $4.4 million in the first three
months of 1997 compared with $4.3 million in the first three
months of 1996.
Insurance losses and loss expenses decreased 6% ($9.3
million in the first three months of 1997 compared with $9.9
million in the first three months of 1996). Insurance
losses and loss expenses on the insurance arrangements noted
above were $.5 million in the first three months of 1997
compared with $.4 million in the first three months of 1996.
<PAGE 8>
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Other income increased 7% ($47.9 million in the first three
months of 1997 compared with $44.8 million in the first
three months of 1996). The increase is due primarily to an
increase in investment income and other fee income offset in
part by a decrease in income from affiliates.
Operating expenses increased 4% ($130.7 million in the first
three months of 1997 compared with $126.1 million in the
first three months of 1996). The increase was due primarily
to increases in employee compensation and benefits and other
costs resulting from business expansion. At March 31, 1997,
Norwest Financial was operating 1,094 consumer finance
branch offices compared with 1,024 at March 31, 1996.
Interest and debt expense decreased 2% ($92.9 million in the
first three months of 1997 compared with $94.7 million in
the first three months of 1996). Changes in interest and
debt expense result primarily from (1) changes in the amount
of borrowings outstanding and (2) changes in the cost of
those borrowings. Average total outstanding borrowings in
the first three months of 1997 remained approximately the
same as the first three months of 1996.
Three Months Ended March 31,
Costs of funds: 1997 1996
Short-term 5.03% 5.51%
Long-term 6.85 6.94
Total 6.31 6.52
Changes in average debt outstanding generally corresponds to
changes in average finance receivables outstanding combined
with the change in notes receivable - affiliates. Average
finance receivables and notes receivable - affiliates
increased 2% in the first quarter of 1997 compared with the
first quarter of 1996.
Provision for credit losses increased 19% ($54.7 million in
the first three months of 1997 compared with $46.0 million
in the first three months of 1996). Net write-offs as a
percentage of average net receivables outstanding increased
to .88% in the first three months of 1997 compared with .77%
in the first three months of 1996. Norwest Financial, along
with the consumer finance industry, has experienced an
increase in net write-offs. Management believes the
allowance for credit losses at March 31, 1997, and December
31, 1996, is adequate to absorb possible losses in the
finance receivables portfolio.
<PAGE 9>
NORWEST FINANCIAL, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations, Concluded
Federal and state income taxes decreased 4% ($34.1 million
in the first three months of 1997 compared with $35.6
million in the first three months of 1996). The decrease
was due primarily to the decrease in earnings before income
taxes. The effective tax rate was 35.2% for the first three
months of 1997 and 36.5% for the first three months of 1996.
The Company and one of its Canadian subsidiaries maintain
bank lines of credit and revolving credit agreements to
provide an alternative source of liquidity to support the
commercial paper borrowings. At March 31, 1997, lines of
credit and revolving credit agreements totaling $1,326
million were being maintained at 33 unaffiliated banks.
None of this credit was in use at the time.
The Company and one of its Canadian subsidiaries obtain long-
term debt capital primarily from (i) the issuance of debt
securities to the public through underwriters on a firm-
commitment basis, (ii) the issuance of debt securities to
institutional investors, and (iii) term borrowings from
commercial banks. The Company also obtains long-term debt
from the issuance of medium-term notes (which may have
maturities ranging from nine months to 30 years) through
underwriters (acting as agent or principal).
Norwest Financial anticipates the continued availability of
borrowed funds, at prevailing interest rates, to provide for
Norwest Financial's growth in the foreseeable future. Funds
are also generated internally from payments of principal and
interest received on Norwest Financial's finance
receivables.
<PAGE 10>
PART II. OTHER INFORMATION
NORWEST FINANCIAL, INC.
Item 5. Other Information
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to
fixed charges of Norwest Financial, Inc. and its
subsidiaries for the periods indicated:
Three Months Ended Years Ended
December 31,
March 31, 1997 1996 1995 1994
1993 1992
2.01 2.11 2.13 2.26
2.22 2.02
The ratios of earnings to fixed charges have been computed
by dividing net earnings plus fixed charges and income taxes
by fixed charges. Fixed charges consist of interest and
debt expense plus one-third of rentals (which is deemed
representative of the interest factor).
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit (12) Computation of ratios of earnings to fixed
charges for the years ended December 31,
1996, 1995, 1994, 1993 and 1992 and the three
months ended March 31, 1997.
(b) Reports on 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
NORWEST FINANCIAL, INC.
Date: May 1, 1997
By: /s/ Eric Torkelson
Eric Torkelson
Vice President and Controller
(Principal Accounting Officer)